Created: 11/11/01; Last Update: 11/11/01 20:30

The material quoted below is from the auto-parts plaintiffs' memorandum of law dated January 12, 2001 in opposition to the defendants' motion to dismiss the amended complaint for alleged insufficiency of pleading. The Court dismissed indirect purchasers claims for monetary relief, but upheld the sufficiency of their complaint as to injunctive relief. Any of these rulings could be appealed by one or more parties, but only after a final judgment has been rendered in the action.

The Plaintiffs' Arguments:

II.

PLAINTIFFS HAVE STANDING TO PURSUE

THESE ROBINSON-PATMAN ACT CLAIMS

INCLUDING CLAIMS FOR INJUNCTIVE RELIEF

There are 7 types of plaintiffs: (i) WD's with retail locations competing with the locations of defendants; (ii) WD's with no retail locations, which do compete with defendants through the customers of the WD's for purposes of Section 2(a)/2(f) (see Point III immediately below); (iii) jobbers who buy directly from the manufacturers and compete with defendants for sales to the same customers; (iv) jobbers buying directly through manufacturers through buying groups, and compete with defendants for sales to the same customers; (v) jobbers buying both directly and through buying groups, and compete with defendants for sales to the same customers; and (vi) jobbers not buying directly from manufacturers or through buying groups, which are the type of jobber plaintiff referred to in defendants' Point II, at pages 26-31. It should be noted that all plaintiffs, including the last category of plaintiff, have a claim for injunctive relief, as alleged in Paragraphs 6, 9, 85, 86, 104 and Prayer Paragraphs 5-6 of the complaint. See Campos reference to Areeda/Hovenkamp and McCarthy below. It should be noted that defendants do not mention plaintiffs' claims for injunctive relief.

Defendants claims that the plaintiffs who did not buy any parts directly (or through buying groups) have no standing but the reasons for the Illinois Brick limitation is to preclude duplicative recovery. Illinois Brick Co. v. Illinois, 431 U.S. 720, 746-47 (1977). The twin requirement of purchasing from the same supplier and that the 2 purchasers be in competition with each other gave assurance to the courts that there would be no duplicative recovery against manufacturers for violations of Section 2(a).

Illinois Brick at p. 746 based its 1977 decision on "holding direct purchasers to be injured to the full extent of the overcharge paid by them than by attempting to apportion the overcharge among all that may have absorbed a part of it." But subsequent case law does not give such overcharge the direct purchaser, who has to reduce it for his related expenses, thereby resulting in an allocation of the overcharge to the jobber, who is then excluded from recovering for the jobber's loss.

It should be noted that the indirect plaintiffs have a claim in any event for injunctive relief, which does not involve any issues of duplicative recoveries.

Illinois Brick Mistakenly Assumed that the Prevailing

Direct Purchaser Plaintiff Is Awarded the Full Overcharge

Illinois Brick makes an erroneous assumption, that the prevailing direct-purchasing plaintiff is awarded the full amount of the overcharge, and therefore any recovery by indirect purchasers would amount to duplicative recovery. J. Truett Payne Co., Inc. v. Chrysler Motors Corp., 451 U.S. 557, 560-561 (1981) holds that the plaintiff is entitled only to lost profits, and specifically that the amount of the overcharge is not recoverable. Thus, if the first purchaser in a 10-step distribution system merely transports the product 2 blocks, its portion of the overcharge winding up in proven losses might be only a small part of the overcharge, with the others in the distribution system suffering most of the losses, but having no right to recover due to Illinois Brick. To correct this oversight, Illinois Brick should be construed to permit recovery of all lost profits resulting from the overcharge within plaintiffs' 3-step system which competes directly with the favored (defendant) purchasers. This would result in no duplicative recovery and uphold the intention of Illinois Brick and adjust for its erroneous assumption. This would be consistent with Illinois Brick's "concern that if the direct purchaser could not make a full recovery of the overcharge, the wrongdoer would be able to keep some of the fruits of its illegality." In re Sugar Industry Antitrust Litigation, 579 F.2d 13, 16 (3d Cir. 1978). Also, it would be consistent with the Second Circuit's discussion of the "standing requirement [which] is designed, in essence, to limit access to treble recovery to a target of the anticompetitive conduct".
Schwimmer v. Sony Corporation of America, 637 F.2d 41, 46 (2d Cir. 1980). The indirect-purchaser plaintiffs are the direct competitors of the favored defendant purchasers. The Supreme Court has allowed an indirect-purchaser suit with "not the slightest possibility of a duplicative exaction from petitioners". Blue Shield of Virginia v. McCready, 457 U.S. 465, 473 (1982). See , 1996 U.S. Dist. LEXIS 4335 (N.D. Ill., E. Div. 1996) for the District Court's decision distinguishing Illinois Brick and allowing indirect-purchaser recovery.

It should be remembered that within a competing distribution system selling parts to the same end customers, and assuming the same price for parts purchased from the same manufacturer, there is only so much in gross profits available to the defendant, a WD distributing through its own retail branches, or a WD distributing through independently owned branches. The gross profit is the same because the initial purchase price is assumedly the same, if there is a level playing field, and the competing retail outlets are constrained to offer comparable, competitive prices. An inefficient distribution system (consisting of a WD and jobber) could use up this fixed gross profit and not be able to show any lost profits, but the most efficient system will be limited to the available gross profit margin. Thus, there is no duplicative recovery, but the denial of recovery rights to the jobber does result in having the wrongdoer keep the profits lost by the indirect-purchasing jobber.

An equity suit neither threatens duplicative recoveries nor requires complex tracing through the distribution chain. There are no damages to be traced, and a defendant can comply with several identical injunctions as readily as with one. Illinois Brick has not therefore barred an indirect purchaser's suit for an injunction." Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law P371d, at 259 (1995); see also McCarthy, 80 F.3d at 856 (holding that "plaintiffs need not satisfy Illinois Brick's "direct purchaser" requirement in order to seek injunctive relief[.]").

[end of sub-quote]

This Illinois Brick limitation should not apply to Section 2(f) cases, because the damage is done directly by a defendant to a plaintiff competing against the defendant.
Plaintiffs have carefully pleaded that there is no duplicative recovery involved, alleging:

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61. When a purchase is made from a chain store of one of the defendants, such sale is taken away from a nearby jobber, who then (in 3-Step Distribution) does not buy that item from its 3-Step Wholesaler (i.e., the warehouse distributor or "WD"), causing an identifiable and non-duplicative loss at each level of the plaintiffs' distribution system.

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The competition between a defendant and a two-step or three-step distribution system necessarily limits plaintiffs' combined losses throughout the distribution system to a non-duplicative amount, measured against the defendant's business. The profitability of defendant's unified distribution system are necessarily allocated between the WD and jobber in the three-step system. The two-step system, of course, requires no allocations because it competes directly at all functional levels with defendant.

The antitrust laws are flexible and applied to the changing needs of the economy, such as the Sherman Act and Clayton Act being given new interpretations to accomodate the increased concentration, expansion and globalization of large businesses. But at the same time, the adverse effect upon small and independent businesses is increased, requiring that the Robinson-Patman Act be applied rationally, to prevent unnecessary destruction of small and independent businesses in the United States. Accordingly, the jobber plaintiffs buying indirectly but competing directly with defendants should be covered by the Robinson-Patman Act to the extent their recovery would not be duplicative, and would instead be no more than an allocation of the lost profits which two-step WD's are entitled to recover.

In addition, the indirect purchaser doctrine affords another basis for including indirect-purchasing jobbers within the protection of Section 2(f)/2(a) of the Robinson-Patman Act, at least as against the competitor defendants. For years the defendants and the manufacturers have conspired with each other (plaintiffs allege) to require WD and direct-purchasing jobbers to purchase their parts from manufacturers at unlawfully high, discriminatory prices which has prevented such plaintiffs from expanding their businesses and get enough volume to buy directly. The illegal activities of defendants and the manufacturers have left such indirect-purchasing jobber plaintiffs with unlawfully high prices and no right to relief, while the conspiracy to violate the statute continues unabated.
If such right to sue for relief is not recognized by the courts under the circumstances of this case, the only relief available to such jobbers would be to sell their businesses to a WD (or to a defendant) and increase the concentration of the industry and the economy, which would be an anticompetitive result.

The Court should revisit antiquated antitrust doctrine in the Robinson-Patman Act area as the Courts have done with the Sherman Act and Clayton Act, to accomodate the growth of large companies and global business. Protection of the Robinson-Patman Act should be recognized to the extent that the principle of non-duplicative recovery is not violated, in a suit such as this where the independent industry parallels the large companies and are thereby limited to the same profits (or lost profits) without duplication.

III.

WAREHOUSE DISTRIBUTOR (WD) PLAINTIFFS HAVE ADEQUATELY

ALLEGED THEY ARE COMPETITORS OF DEFENDANTS

Most of the warehouse distributor (i.e., "WD") plaintiffs sell to customers in competition with defendants' branches, and have identified such branches in Appendix D.

Three of the WD plaintiffs (## 1, 88 and 110) do not have any retail stores and sell only through jobbers, who resell the parts to customers in competition with defendants' branches (referred to in Appendix D as having "indirect competition" with defendants). Seven WD plaintiffs also referred to as having "indirect competition" (## 30a, 43b, 51b, 81b, 120a, 120s and 130a) also own their own retail branches in "direct competition" with defendants.

These "indirect" WD's compete with defendants in the purchasing of parts from the 16 manufacturers and compete through the WD's customers (with retail branches) in the sale of parts to retail customers (or with their own related corporations having retail branches). The sale of a part by defendant is often the loss of a sale by the competing jobber, and the WD plaintiff from whom the jobber buys its parts.

The indirect purchaser doctrine does not apply to both ends of a competitor's business, only to the purchasing end. The doctrine is used to determine whether a person purchases from the same supplier as his competitor. Competition for sale of auto parts to ultimate purchasers can be in a variety of means, such as through telephone, through internet, through door to door salesmen, through gas stations, or through independent jobbers, without changing the fact that the two original purchasers are competing with each other for sales of auto parts to the same end purchasers.

The foregoing become clear from Federal Trade Commission v. Fred Meyer, Inc., 390 U.S. 341, 356-357 (1968), in which the Court stated:

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We noted in FTC v. Sun Oil Co., 371 U.S. 505 (1963), that when Congress wished to expand the meaning of competition to include more than resellers operating on the same functional level, it knew how to do so in unmistakable terms. It did so in Section 2 (a) of the Act by prohibiting price discrimination which may "injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them." Id., at 514-515; see FTC v. Morton Salt Co., 334 U.S. 37, 55 (1948). [Emphasis added.]